The general consensus around the water cooler and at the neighborhood poker game is that the United States doesn’t manufacture anything anymore, and that this is a bad thing.
As with most consensus opinions about economic facts, this one is mostly wrong when the statistics are examined for what they really mean. There is no doubt that we have less people employed in manufacturing jobs as a percentage of the overall workforce. In 1987, about 16.5 percent of U.S. workers were involved in manufacturing. Today, that number is around 10 percent.
Interestingly, while we have a smaller proportion of the labor force involved in manufacturing and a corresponding larger percentage involved in service sector jobs, the value of goods manufactured here has grown in value almost every year since 1987, with the two exceptions being the recession years of 1990 to 1991 and 2000 to 2001.
Perhaps most importantly, as recently as 2006, U.S. manufacturing represented 22 percent of the world’s total manufacturing output. You may also be surprised to learn that this is the same level as in 1995, and consistent with the approximate 20 percent figure which has been recorded since 1982.
How can our share of world manufacturing production remain so strong, when every time we turn over our newest acquisitions they are labeled “Made in China?” The secret is in what we make versus what is made in China and many other emerging economies.
How much profit would you expect to there to be in a DVD player priced under $100? I would rather have my firm assembling products in which there is $100 of profit, rather than a total sales price of $100 and a profit of $10. American firms have passed off the production of lower priced and lower profit margin goods to the very talented but low cost labor forces of China, India and other emerging economies, and retained the production of higher dollar and higher profit margin goods such as medical devices, communications and networking and transportation equipment.
The other question that begs asking is how can we continue to produce over 20 percent of the worlds goods but have more than 30 percent less manufacturing jobs? Increased productivity is the answer. Providing a smaller number of workers the capability to produce more goods through the use of technology and automation allows us to prepare for the day when a very large portion of our population, the baby-boomers, will be of retirement age and not available to fill these positions.
Of course, as the transition of moving lower skilled and less critical jobs to emerging economies and the increases in productivity march on, there are certain industries and workers in those industries which are temporarily displaced and need to be retrained or absorbed by the economy in a different capacity. This is not fun for those involved, but the process is nothing new as the evolution of the world’s global economy continues.
In fact, increasing productivity is affecting the Chinese as well. It is estimated that in 2005 the U.S. lost two million manufacturing jobs, but that China lost over 15 million as it makes technological improvements to remain competitive.
Obviously, there will be struggles as we continue down the path of globalization. But the benefits of both a global economy and a more service based economy, less dependent on manufacturing of hard goods, are rapidly becoming evident. We have experienced much longer economic expansions and less frequent and shorter recessions in the last 20 years than ever before. While no one knows exactly what the future holds, we appear to be doing something right.
Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing.